PSNH seeks rate hike, rivals respond

By DAVE SOLOMONNew Hampshire Union LeaderDecember 13. 2012 11:47PM
MANCHESTER - Hot competition for electricity customers in the state is about to get even hotter with the release of the formal rate request for 2013 by Public Service Company of New Hampshire.

PSNH filed its updated forecast with state regulators on Thursday, seeking an average rate increase of about 8 percent on Jan. 1 for customers purchasing both delivery and energy service from the regulated utility.

A current customer for both energy and delivery using 500 kwh a month will see the bill go from $86 to $92. A larger household using 700 kwh a month will see the bill go from $116 to $124.

Customers are free to purchase energy from a third-party provider, even though PSNH will continue to deliver the power.

The energy service rate in the PSNH request has competitors salivating. The company is forecasting an energy charge of 9.54 cents per kilowatt hour, compared to the current rate of 7.11 cents per kwh, a 34 percent increase.

Decreases in other charges on the PSNH bill offset the energy charge increase to keep the overall increase in the 8 percent range, PSNH spokesman Martin Murray said.

Competitors for the energy portion of the bill, like ENH Power in Portsmouth or Resident Power in Manchester, are currently offering lower energy rates on fixed contracts ranging from six months to a year. Within minutes of the PSNH rate release, North American Power of South Norwalk, Conn., pounced, with a news release promoting its lower rates.

The current North American offer for six months is 7.29 cents per kwh. Resident Energy's offer this week is set at 7.40 cents on a 12-month contract, while ENH is offering 6.99 cents for 12 months.

"The sharks are circling," said Bart Fromuth, managing director of Resident Power. "There's blood in the water with this new high rate."

Third-party providers

New Hampshire energy consumers have been able to purchase power from third parties for more than 10 years, but there was little movement in the residential market because competitors could not beat PSNH prices. That all changed with the drop in natural gas prices in the past two years.

ENH, which has been marketing aggressively, claims to have switched 25,000 customers in the past year, while Resident Power is now at 12,000 conversions, according to Fromuth.

With more than 400,000 residential customers in the state, PSNH continues to serve at least 90 percent of the market, but that could change, depending on where natural gas prices go.

If they stay low, Fromuth sees a mass migration. "I believe by the end of 2013 you'll see at least 40,000 and perhaps as many as 70,000 making the switch," he said in an earlier interview. He also predicted an additional 10 to 15 competitors would enter the residential market in the year ahead, pushing prices even lower.

The Public Utilities Commission is concerned that so many customers will switch that the costs of the regulated utility will be spread over a shrinking customer base, so it is considering a PSNH proposal for an Alternative Default Energy Service Rate, or ADE rate, that would be offered only to PSNH customers who have migrated to competitive suppliers and are willing to return. The ADE rate, if approved, would be 7.76 per kwh in 2013, still higher than current competitive offers.

"It would benefit customers who didn't leave," said Murray, explaining that revenue generated by ADE customers would be used to keep future rates down for everyone. If prices rise dramatically, the ADE rate could actually end up being higher than the default rate paid by existing customers. The difference would be used to the advantage of those customers, Murray said.

Natural gas going up

In October, PSNH estimated that it would need an energy charge of 8.97, but increases in natural gas costs since then prompted the revision to 9.54 cents. The wholesale price of natural gas for delivery to New England has increased approximately 20 percent in the past 2 1/2 months, Murray said, going from $4.67 per MMbtu in September to $5.53 per MMbtu in December. In 2008, those prices were as high as $14.

"Our forecast is based on the anticipated price of natural gas increasing," Murray said. "With the increasing demand for natural gas, and the price that it has been set at, there is really only one direction it can go, and that is up."

Until 2011, the PSNH energy service charge was lower than the New England average, largely because PSNH owns its own electricity generating facilities, such as the Merrimack Station coal-fired plant in Bow, said Murray. The utility has been under pressure to divest itself of its plants because their costs increase other portions of the bill, causing a higher price on the bottom line than in other states.

In recent years, New Hampshire has been in the middle of the pack for the 50 states when it comes to total charges on the residential electric bill. "The fact that we still have our own generation has been a net benefit to New Hampshire for the last 10 years," Murray said.

Volatile situation

The energy situation for consumers is likely to become more volatile as prices fluctuate. Murray said consumers could switch to a competitor and get a good price for a year, only to find that price significantly higher at the time of renewal. At that point, they could come back to PSNH at the ADE rate, which could be lower than the rate offered by competitors but higher than the rate paid by PSNH customers who stayed with the utility.

"It's an extremely volatile marketplace," Murray said. "The short-term phenomenon is that our price is above the market price right now, but that has not been the case over the past 10 years. We'll have to see going forward if it remains that way."